(September 2022)
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Collapsible Menu Insuring Agreements |
Financial Institution
Bond–Standard Form No. 25 is written for those that provide life, endowment,
accident, and health insurance to members and policyholders. Insurance
companies, reinsurers and fraternal orders that offer such products can
purchase the bond. This bond can also be used to insure life insurance general
agents, servicing agents, and soliciting agents when the appropriate ride is
attached. Standard Form No. 25 is similar to Standard Form No. 24 and is
written with an aggregate limit of liability over the full term of the bond.
Rules and rates for this
bond are under the jurisdiction of the Surety and Fidelity Association of
America (SFAA). The bond is continuous and is subject to an overall aggregate
limit of liability over the entire life of the bond and is cancelled when this
limit is exhausted.
This analysis is based on
the 05 11 edition. Changes from the previous edition are in bold print.
Insuring Agreement A.
covers loss that involves any dishonest or fraudulent act by any employee. These
losses are covered regardless of where they are committed and whether they
occur due to one employee acting alone or one employee acting in collusion with
other employees or outsiders. The employee must intend for both of the
following two very specific results:
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Example: Precious is a bookkeeper at Little Insurance Company. She
is not very good at the job but is very pleasant. She makes frequent mistakes
and covers them up. An audit reveals that her mistakes have cost Little
Insurance Company $35,000. There is no coverage for the loss because Precious
never intended to cause a loss and did not obtain any benefit except for her
paycheck. |
This insuring agreement
has two limitations:
When the term “improper
financial benefit” is used in this insuring agreement it does not include any
employee benefit earned by the employee such as salary, commission, promotion,
awards, or other benefits. Similarly, the term “loss” used in this insuring
agreement does not include any type of employee benefit paid to an employee by
the employer. Examples of employee benefits are commissions, fees, bonuses,
promotions, awards, profit sharing, pensions, and salaries, but the term is not
limited to only these.
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Example: Peter drove his company car across the border and never
returned. He also took his company-supplied cell phone, laptop, and tablet.
He used his company credit card to make a number of purchases to enhance his
new life. His actions resulted in a loss of $95,000. These were all company
benefits (because the company supplied them) but were considered improper
benefits because they were for Peter’s use only on company business. This
loss is covered. |
Insuring Agreement B
covers losses to certain types of property. Those types of property are listed
in a table in the definitions section of this bond. Other types of personal
property are not covered. The loss must be caused by robbery, burglary,
misplacement, mysterious disappearance, damage, or destruction.
Loss due to larceny,
theft, or false pretense is also covered but only when the person committing
such crimes is actually at an office or on the insured’s premises at the time
the property is handed over.
The losses described
above are covered only if the property is actually at or deposited in the
office or premises. The office or premises where the loss occurs can be
anywhere. This broad territory can be
reduced by making an entry under item 7. on the declarations that lists the
specific offices where coverage does not apply.
This insuring agreement
also covers loss of or damage to the office and its furnishings as a result of
larceny, burglary, robbery, theft or attempts thereat. The insured party must
either own the premises where the loss occurred or be legally liable for it.
Losses caused by fire are not covered.
Insuring Agreement C is
the off-premises version of Insuring Agreement B. It insures against robbery,
larceny, theft, misplacement, mysterious disappearance, damage, or destruction
of the defined property while being transported.
Coverage applies only if
the property is in the custody of one or more of the following:
Coverage begins when the
messenger or transportation company receives the property. It ends immediately
when it is delivered to the designated recipient.
This optional insuring
agreement covers loss resulting from forgery or alteration of beneficiary requests,
assignments, or any other type of negotiable instrument, other than registered
or bearer obligations.
The insured must have
physical possession of the listed items as a precondition to it relying on the
signature.
Note: A reproduction
is treated the same as a handwritten signature. However, electronic
or digital signatures are not the same as reproductions.
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Example: Very Careful Insurance Company receives a written request
to change Margaret’s beneficiary to from Jeremy to Mildred on 3/1/2021. The
change is made. On 6/1/2022 Margaret dies and on 6/5/2022 Mildred submits
Margaret’s death certificate and receives the $250,000 face value. On 9/1/2022,
Jeremy submits Margaret’s death certificate and requests the face value of the
policy. Very Careful denies the request because the funds had been released
to Mildred. Jeremy does not know
anyone named Mildred and investigation reveals that Mildred was the assumed
name of a trusted aid of Margaret who forged her name and then absconded with
the funds. Coverage is available under this bond for Very Careful’s loss when
they pay Jeremy the $250,000. |
This insuring agreement
covers these types of securities:
Note: This was covered under Insuring Agreement
D. in the prior edition.
This optional insuring
agreement applies to any of the following three types of losses that occur but
only if the insured was acting in good faith at the time of the loss. The loss can
be for its account or for the account of others.
1. A loss occurs when the insured has faith in the written original
of any of the listed securities so that they were acquired, sold, delivered,
credit was extended, or liability was assumed and one or more of the following
happens:
2. A Loss occurs because the insured provided a written guarantee
or a witness of signature on any of the listed securities or on any other
transfer, assignment, bill of sale, power of attorney, guarantee, or
endorsement.
3. A loss occurs when one or more of the listed securities above are
counterfeit. The insured must sustain the loss because it acquires sells,
delivers, gives value to, extends credit, or assumes liability believing that
the security is real. The loss is limited to the extent of the financial loss
resulting from the item being counterfeit. This coverage does not apply to the
corporate, partnership, or personal guarantee, evidences
of debt, or to the security agreement securities.
In order for coverage to
apply, the insured must have actually possessed the listed securities that
result in the loss. This proves that the insured was involved in a good faith
transaction.
A reproduction is treated
the same as a handwritten signature. However, electronic
or digital signatures are not.
An insured can grow by
adding new offices or by merging with other entities. The method of growth
determines the amount of insurance available.
When growth is due to adding
offices those additional are covered from the date they are added
and coverage applies for the remaining premium period. There is no additional
premium charged and the insured is not required to notify the underwriter.
Another way to grow is
through merger or acquisition. This type of growth is not covered unless and
until the underwriter is notified. After the notification is received, the
underwriter can agree or not agree to cover the merged or acquired entity. If
accepted, the insured must pay any additional premium.
Note: This
difference in approaches is justified. In the first situation, growth involves
the party the underwriter originally evaluated and accepted. Unless the new
office added is unusual or extraordinarily large, the nature of the insured's
operations does not usually change. In cases of merger or acquisition, the
insured's operations now include the operations of another distinct and
separate entity that the underwriter has not yet examined. It is reasonable to
require notification, written authorization, and additional premium charges in
cases of merger or acquisition.
Underwriting is based
largely on the insured's management. Therefore, any time there is a significant
change in management, the underwriter must be notified. The policy requires
that when10% or more of stock ownership or partner/member
ownership interest changes hands, written notification must be provided
within 30 days of the change or coverage ceases for that new interest holder.
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Example: Medium Insurance Company decides to issue additional
stock in order to expand its operations. Jasper, Inc. decides to purchase all
the stock in the offering and becomes an 11% owner. Jasper, Inc. insists on director
slots on the board. The new board begins to rapidly make changes. Coverage
for any loss involving Jasper, Inc. will end within 30 days of its stock
purchase unless notification is provided to the Underwriter. |
The application the
insured completes is attached to the bond and coverage is written based on that
information. The insured represents that all information on the application is
true, complete, and correct. The bond may be rescinded if there is any
concealment, incorrect statement, or omission of information considered
material.
Note: The prior edition stated that a misrepresentation, concealment,
incorrect statement, or omission had to be intentional in order to rescind the
bond. The 05 11 edition eliminates the words intentional and representation.
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Example: General Bond Corp. issues
Standard Form No. 25 to Airhead Casualty and Indemnity. General agrees to
write the bond based in part on the statement on the application that Airhead
is a medium-sized insurance company with branch office operations made up of
small staffs tightly managed and supervised by branch managers. Airhead
reports a loss under the bond. As part of its investigation, General
discovers that the loss involved a newly hired employee who accepted forged
securities and that Airhead had dozens of untrained and virtually
unsupervised staff members in many of its branch offices. General denies the
claim and rescinds the bond based on representations in the application that
did not correspond to its actual operation. |
If the bond covers two or
more insureds, the first named insured acts for all others. Payments the
underwriter makes to the first named insured fully release the underwriter. If
the first named insured is no longer covered for any reason, the next named
insured assumes the position of first named insured. This provision makes
working with more than one insured more practical. Having multiple insureds on
the bond does not increase the underwriter's liability.
The insured must notify
the underwriter of any legal proceedings against it related to an incident that
may result in a covered loss as soon as practicable The
notification can be no later than 30 days after the insured knows about a legal
action.
Note: While this provision requires notifying the underwriter as
soon as practicable, it does not allow the insured the latitude to freely
interpret what that really means. This provision requires notifying the
underwriter not more than 30 days after the insured first becomes aware of any
legal action.
The underwriter can
assert its right to handle the legal defense that involves a legal proceeding
that may affect coverage (including choosing attorneys) but is not obligated to
do so. If the underwriter decides to provide a legal defense, the coverage
provided includes all related costs. The insured must cooperate with the
underwriter in any defense. Failing to do so could result in the underwriter
terminating any defense.
When the insured does not
provide the underwriter with notice of a claim or an event within the 30-day
time period, the underwriter is not obligated to do anything with respect to
the claim or event that binds it in any way. A settlement agreement the insured
enters into is not binding on the underwriter. If the insured defends the claim
or event, the underwriter is not liable for any of the defense costs and is
also not bound for any judgment made against the insured.
In addition, the
underwriter may decide to not defend against any claim or event, even though
the insured provided the appropriate notices. If the insured elects to defend
and assume all attorney fees and other costs associated with the defense the
costs of the defense are the insured’s responsibility and the underwriter does
not pay. Any settlement the insured makes and any judgment against it are not
binding on the underwriter.
If the insured settles or
a judgment is entered against it, it has up to six months after the settlement
to file a complete proof of loss with the underwriter. It also must file any
claims against the underwriter within 24 months of that date.
If the insured is
required to provide ERISA bond coverage for any plan, the plan subject to ERISA
can be added to this bond as an insured. This is permitted only if the majority
of the ERISA beneficiaries are the insured’s employees or former employees. The
plan is an insured for only Insuring Agreement A. Because ERISA has its own
rules with respect to bonds, there are certain specific conditions that apply
to these ERISA plans.
1. ERISA does not
permit deductibles on its required limits. The required limit is the lesser of
$500,000, or 10% of the plan assets when the plan does not hold employer
securities and the lesser of $1,000,000 or 10% of the plan assets when the plan
does hold employer securities. If an ERISA loss that involves Insuring
Agreement A occurs, the deductible applies once the insurance company pays the
minimum amount ERISA requires.
2. A loss discovered
during this Bond’s policy term or within one year after it ends is covered
under this Bond. However, if a loss is discovered in the year following the end
of the policy term, any loss payable under this Bond is reduced by the amount
payable under the bond for the current policy term.
3. If the
financial institution has two or more plans subject to ERISA, the limit of
coverage purchased must be sufficient to cover the sum of the minimum required
limits of all plans.
The terms defined in
Financial Institutions Bond–Standard Form No. 25 are in alphabetical order.
Most were modeled on definitions in the Uniform Commercial Code. While some of
the terms are the same as those in Standard Form No. 24, Standard Form No. 25
has others that are modifications or that are unique to this bond.
Certificate of Deposit
Any written
acknowledgement from a financial institution that it received money and that it
is formally obligated to repay the one who deposited the money with that
financial institution.
Certificate of Origin or Title
A document a product manufacturer or government agent issues that
can be used to prove evidence of personal property ownership. It is used to
transfer ownership.
Certificated Security
A written document that provides evidence of ownership or
participation in an enterprise or of an obligation of the enterprise. It must
be issued in a registered or bearer form. The instrument must be a type commonly
traded in securities exchanges or markets and be part of a class or series.
Change in Control (05 11 change)
When ownership of 50% or
more of the voting stock of the insured, the parent company, or the holding
company changes. This term also applies
when 50% or more of the ownership interest of the insured, its parent company,
or its holding company changes.
Counterfeit
A written imitation of an original intended to deceive and to be
accepted as an original
Employee (05 11 change)
Each of the following is considered an employee:
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Example: Kelly is an employed lawyer of Great Insurance Company.
Patricia, a Great Insurance Company policyholder, is sued following an
accident. Kelly represents Patricia in accordance with Patricia’s policy.
Kelly absconds with funds that are intended to pay for Patricia’s claim. This
embezzlement loss is covered even though Kelly was operating on Patricia’s
behalf rather than Great Insurance Company’s behalf at the time of the loss. |
Note: Employee does
not include agents, brokers, general agents, sub-agents, loan agents, fiscal
agents, property management agents, real estate agents or other representatives
of the same general nature. It also does not include independent contractors
except for attorneys as described above.
Evidence of Debt
A written instrument a
customer executes to document its debt obligation to the insured. It includes
Negotiable Instruments.
Forgery
When one party signs the
name of another party without that other party’s authorization but only if
there is intent to deceive. The party can be a person or an organization. This
definition does not treat electronic or digital signatures as signatures. When
a person places his or her own signature on a document that he or she whether
or not authorized to do so, it is not a forgery even if the intent was to
deceive.
Guarantee
Any written undertaking where one party agrees to pay the debt
another party owes if that other party does not pay based on the terms of its
obligation. The debt can be to the insured financial institution, an assignee
of the insured, or to an institution from which the insured purchased a
participation in the debt.
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Example: Monty is starting an insurance company. Members of his
family provide guarantees on Monty’s behalf in order to satisfy the minimum
financial requirements of the state. |
Letter of Credit
A written arrangement between a bank and its customer whereby the bank
honors drafts and other demands for cash based on that arrangement. The
customer must request the letter of credit. The letter must include conditions
required for the bank to comply.
Loan
Any and all extensions of credit the insured makes. It also includes
transactions where the insured establishes a creditor relationship, even those
where the insured purchases another’s creditor relationship.
Messenger
Any employee of the insured who has the insured’s property off
premises. If that employee becomes incapacitated, any natural person who
assumes custody of that property is also considered a messenger.
Money
A medium of exchange a
foreign or domestic government authorizes or adopts as part of its currency. It
must be in in current use.
Negotiable Instrument
Any type of writing that
meets all of the following criteria:
Property
All of the following are
considered property:
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Money |
Certificated Securities
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Negotiable Instruments |
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Certificates of Deposit
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Evidences
of Debt |
Security Agreements |
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Abstracts of Title |
Letters of Credit |
Hard copy or electronic
financial records |
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Deeds and Mortgages on
Real Estate |
Revenue and other
Stamps |
Books of Account |
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Other written records |
Other records that are
stored on a tangible media |
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Other tangible Personal
Property not listed in the table is also property. However, it is not covered
in the same way as the property listed in the table.
Note: In the first part of the On Premises coverage only “enumerated
items of property” are covered. Those are the items listed in the table above.
When term “property” is used, it means all items in the table plus the other
tangible personal property.
Security Agreement
A written agreement that has two purposes:
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It
creates an interest in personal property or fixtures.
·
It secures payment or performance of an
obligation.
Transportation Company
Any organization that
uses its owned or leased vehicles to transport its customers' property. It may
also arrange for freight forwarding or air express services for its customers'
property.
Written
Three criteria must be
met for something to be considered written:
Despite Standard Form No.
25's very broad coverage, there are exclusions. Coverage for some of excluded
items can be purchased by using a rider or the coverage may have to be
purchased under another form of insurance such as a property coverage form.
Standard Form No. 25 contains 23 exclusions.
Related Article: Financial Institution Bonds Available
Riders and Their Uses
Editorial Note: The exclusion titles in this section are not part
of the bond. They are provided as an aid to understanding.
a. Forgery or alteration
Loss
due to forgery or alteration is excluded. This exclusion does not apply to
Agreements A, D or E.
b. War, riot, or civil commotion
Loss caused by riot or civil commotion is
excluded but only when it occurs outside the United States and Canada.
Loss due to warlike action anywhere is
excluded. There is an exception when Insuring
Agreement C applies. However, the exception is in effect only if nobody knew
about such events taking place at the time the property started in transit.
c. Nuclear
fission, fusion, or radioactivity
There is no coverage for any loss due to
nuclear fission, nuclear fusion, radioactivity, or any chemical or biological
contamination. This applies to both direct and indirect loss. There are
no exceptions.
d. Acts of members of management board (05
11 change)
Losses caused by acts of a member of the
board of directors or any similar type board are
excluded. This exclusion does not apply to Insuring Agreement a.
e. Loan transaction (05 11 change)
There
is no coverage for any direct or indirect loss caused by complete or partial
non-payment or default of a loan or transaction that involves the insured as a
lender, borrower, or extender of credit. This exclusion does not apply to
Insuring Agreements A and E.
Note: The prior edition also had an
exception for Insuring Agreement D.
f. Insurance, indemnity, or surety
contracts
Any
loss that occurs directly or indirectly due to any of the following is excluded
when related to insurance, indemnity, or surety contracts the insured issued:
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Example: Gregory, a surety underwriter for Surety Plus, accepted
a letter of credit from Midstate Bank in the amount of $10,000,000 before
providing a surety bond for Good Times Contracting. Good Times breaches the
terms of its contract and the bond is called.
Gregory looks to Midstate Bank to honor its letter of credit but discovers it
was defective and cannot be used. Surety Plus is not covered under this
policy when it cannot be reimbursed for the $10,000,000 loss because of the defective
letter of credit. |
g. Employee actions
There
is no coverage for direct loss caused by an employee except under the following Insuring Agreements:
h. Counterfeiting
Loss caused directly or indirectly by
counterfeiting is excluded. This exclusion does not apply to Insuring
Agreements A or E.
i. Trading losses
Losses that result directly or indirectly
from trading with or without the insured's knowledge are excluded. This
exclusion does not apply to Agreements A, D, or E.
j. Loss of tangible personal property
Loss to “Other Tangible Personal
Property not listed in the table” in the
definition of Property is excluded when the insured has other insurance to
cover the property. Even if such other insurance is not available, loss to such
property is excluded 60 days after the insured becomes is aware that it owns or
is responsible to insure it. This exclusion does not apply to Insuring Agreements
A. and B. 2.
k. Loss of property
Loss of
property that is in the mail, in the custody of any transportation company, or
while on premises of a messenger or transportation company is excluded.
This
exclusion does not apply to Insuring Agreement A.
When
the property is in the custody of a transportation company, this exclusion does
not apply to Insuring Agreement C.
l. Potential income
There is no coverage for potential income
that the insured may have earned if there had been no loss. Examples of
sources of potential income are dividends or interest.
m. Surrender
of property
There is no coverage when property is
surrendered due to a kidnapping or a ransom payment. There is also not coverage
when property is provided in response to a threat of bodily harm except when it
is an immediate threat to the person in control of the property. Property that
is intended to be given as ransom or in response to extortion is also not
covered if it is destroyed, disappears or stolen.
This exclusion does not apply to Insuring
Agreement A.
n. Legal liability
There is no coverage for damages to property
for which the insured is legally liable. The only exception is when the insured
can show that the loss to such property would have damaged the insured’s
property for the same amount if it had not damaged the property for which the
insured was legally liable.
o. Fees, costs, and expenses
The fees,
costs, or expenses the insured incurs to establish a claim or the claim’s
amount are excluded. Coverage also does not apply to fees, costs, or expenses
associated with any legal proceedings.
p. Indirect or consequential losses
Indirect or consequential losses of any kind are
excluded. Examples of such losses are fines, penalties, multiple, or punitive
damages.
q. Securities/Investment Laws Violations
Loss
caused by an insured or its employees who violate a law that regulates securities
and investments is excluded. Loss due to violating any rule or regulation that
emanate from such a law is also excluded. An exception applies to fraudulent or
dishonest actions that would have caused losses to the insured even if the
laws, rules, or regulations were not in place.
r. Failure of a financial or depository
institution to pay or deliver funds
There is no coverage when a loss occurs
because a financial or depository institution did not provide deposited funds
or property to the insured when it requested them. The exceptions are any
coverage that Insuring Agreements A. or B. 1. a. provide.
s. Erroneous deposits
Any loss that is the result of accepting a
check that is payable to an organization and placing it for deposit in a
natural person’s account is excluded.
t. Racketeering activity
Loss
due to any racketeering activity is excluded. Racketeering activity is defined
in the United States code.
This
exclusion does not apply to Insuring Agreement A if the racketeering damages
were caused by an employee.
u. Dishonest or fraudulent acts
Coverage does not apply to any loss resulting
directly or indirectly from any dishonest or fraudulent act by any non-employee
broker or agent engaged in any of the practices listed in the exclusion.
v. Confidential
information
Any
type of loss that results from any theft, destruction, or disappearance of
confidential information is excluded. Examples of confidential information are
intellectual property, customer lists, and trade secrets.
w. Employee
Loss caused by any employee with a history of
fraudulent or dishonest activities at either this insured
or any other business is excluded. This exclusion applies only when the
insured, an officer, or director knew about the history of activities. The
knowledge of the history must be gained prior to the date of loss. If property
is in transit with that employee at the time the history knowledge is obtained,
loss of that property would be covered.
This exclusion does not apply if the officer
or director who knew about the background colluded with the employee to commit
a dishonest act.
Similar to other bonds,
Standard Form No. 25 covers only losses discovered during the bond period. This
is like the Commercial General Liability (CGL) Claims-Made Coverage Form.
Discovery occurs when the insured first
becomes aware of facts that should lead it to assume that a loss has
occurred. The bond in effect when the loss is discovered is the one that provides
coverage, not the one written by another surety or even the same surety that
was in effect when the loss occurred.
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Example: Madge was a trusted employee of the Grand Insurance
Company for more than 25 years. She retired and purchased property in South
America. She sent a letter to Ken, her former boss, five years later and
detailed her 25 years of employee theft. She explained that she could not
have afforded her new lifestyle without the extra money. Even though the
thefts started 30 years before the current bond period, only the current bond
responds to the entire loss because the loss was first discovered during the
current policy period. |
Discovery also occurs
when the insured first receives notice or becomes aware of an actual or
potential claim where it is alleged that the insured is liable to a third party
under circumstances that would constitute a bond loss.
Related Court Case: Fidelity Loss Recovery Held Barred by Policy’s Discovery Provisions
Note: This bond does not define an insured. As a result, and in
order to avoid disputes involving discovery of a loss, the discovery clause
should be modified to state that a senior officer or the insured's risk manager
must be aware of the facts surrounding a possible loss. Otherwise, it could be
asserted that any employee’s
awareness of a loss triggers discovery and the 30-day notice period begins.
Aggregate Limit of Liability
The underwriter's total
liability for all losses discovered during the bond period in Item 2. on the
declarations is the Aggregate Limit of Liability in Item 3. on the
declarations. It is reduced by the amount of any payments made. The Aggregate
Limit of Liability may be written for a larger amount than the single loss
limit.
The insurance company
does not make any additional payments once the Aggregate Limit of Liability is
used up paying losses. Its obligation to defend also ends. The insured must
then defend at its own expense.
Any recovery received
reinstates the Aggregate Limit of Liability but only if it is received before the
limit is used up.
Reinsurance recovery by
the underwriter is not considered a recovery that reinstates the aggregate.
The underwriter may
choose to use a Lost Instrument Bond to settle a property loss. In that case,
there is no loss to the aggregate until that Lost Instrument Bond makes a
payment.
Single Loss Limit of Liability
The underwriter's
liability for a single loss is the applicable Single Loss Limit of Liability in
Item 4. on the declarations. If more than one insuring agreement or coverage insures
a single loss, the most paid does not exceed the largest Single Loss Limit of
Liability that applies.
The Single Loss Limit of
Liability for the optional insuring agreements may not be higher than the basic
bond limits.
Any payment under the
single loss limit of liability is subject to the aggregate limit of liability.
Single Loss Defined
Single loss means all
covered losses associated with a single act or series of related acts,
including costs and attorneys’ fees.
Related Court Case: "Series of Related Acts" in Employee Dishonesty Coverage Held to
Encompass Continuous Embezzlement Scheme
The insured must contact
the insurance company within 30 days after discovering a loss
but this is the maximum time limit. The insured is obligated to notify the
insurance company as soon as practicable. This is later than "as soon as
possible" but earlier than "at its earliest convenience."
The insured has six
months after discovering the loss (not six months from notice) to provide the
company with a sworn proof of loss including all known details. If lost
certificated securities are involved, the proof of loss must include their
numbers.
The insured has only a
limited time period to sue the company to recover the loss. The suit cannot be
filed sooner than 60 days after the proof of loss is filed or more than 24
months after discovering the loss.
Note: It is very
important to be aware of the time limits and how they are established.
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Example: Using the previous example, Ken received Madge’s letter
on 06/01/22 and sent a copy to Grand’s Risk Manager on 06/04/22. The Risk
Manager must notify the underwriter as soon as practicable but not later than
07/01/22. Grand's notification is
dated 06/25/22. It must provide a written notice and complete proof of loss
to the underwriter by 12/25/22. Substantiating the claim involves quite a bit
of work but Grand submits the written notice and complete proof of loss on
12/23/22. The underwriter reviews
the documentation and offers a partial settlement on 09/01/23. If Grand
commences legal proceedings, it may do so immediately, but not later than
05/31/24. |
Time limits are amended
if they are different than or conflict with any state or federal statutes that
apply. In those cases, the minimum time limits that such statutes provide apply
in place of those stated above.
A bond is for only the
insured. Only the first named insured is authorized to bring any legal
proceedings against the underwriter.
Losses are valued as the
insured's net loss after credits for any receipts, payments, or recoveries.
This means that in transactions where the insured receives an item of value,
its value is deducted from the loss amount. If a loan is involved, interest
from the loan is also deducted.
Money
Any loss of money,
currency, or funds of any country is paid in that country's money, currency, or
funds. The insured has the option to have foreign country losses paid in
dollars based on the rate of exchange of United States dollar equivalents on
the date the loss is paid.
Securities
The underwriter settles
its obligation to pay an eligible loss of any securities in kind. As an option
(but only if the insured prefers), the underwriter pays the insured the cost to
replace the securities. The replacement value is determined by the market value
of the securities at the time of settlement and not on the date of discovery.
If the lost securities cannot be replaced or do not have a quoted market value,
their value is determined by agreement or arbitration.
When a deductible applies
to the loss or if the loss exceeds the limit of insurance available, the
underwriter is responsible to duplicate only the amount
of securities within the available limits.
Books of Account and Other Records
In case of loss or damage
to books of account or other records, the bond obligates the underwriter to pay
only if the books or records are reproduced. Payment is not for more than the
cost of blank books, blank pages, or other materials plus the cost of labor to
transcribe or copy data.
Property Other Than Money, Securities, or Records
When a loss involves
insured property other than money, securities, or records, the underwriter must
settle according to the property's actual cash value, the cost to repair it, or
the cost to replace it with similar property. This settlement option also
applies to damage to the insured's offices and furnishings, fixtures,
equipment, safes, and vaults contained in those offices.
If the insured and the
company cannot agree on a settlement, arbitration determines the final
settlement amount.
Set-Off
The amount of loss the
underwriter pays for a loss under Insuring Agreement A is reduced by a set-off.
This set-off is the amount of money owed to the named insured by the employee
who caused the loss.
The insured assigns all
its rights of recovery for losses the underwriter paid to the underwriter. The
insured agrees to cooperate and assist the underwriter in any attempt to
recover payment from any other party responsible for the loss. If a recovery is
made the money is distributed in the following order:
1. The insured is paid the amount of
loss in excess of the amount it received from the underwriter.
2. The underwriter is reimbursed for
the amount of the loss it paid to the insured.
3. The insured is paid for the amount
of deductible.
4. The insured is paid for any loss that
this bond did not cover. (05 11 addition)
The insured agrees not to
do anything to prejudice or inhibit any right of action by the underwriter
against other parties responsible for the loss.
The insured agrees to
submit to examination by the underwriter, to produce all pertinent records, and
to cooperate fully in all matters that relate to the loss.
If an insuring agreement
states that a specific type of instrument must be forged, altered, or
fraudulent in order for coverage to apply, that statement applies to only that instrument.
There is no coverage if other papers within the document are forged, altered,
or fraudulent when the specific instrument itself is valid.
If other insurance in
force applies to the same loss, this bond contributes to the loss on an excess
basis.
This bond applies to the
insured's owned property, property it holds in any capacity, and also property
that is owned and held by others but, prior to the loss, the insured became responsible
for it. However, the bond is for the benefit of the insured named on the
declarations and not for other parties, even in cases where that other party
also owns the covered property.
The underwriter does not
pay any loss until the amount of loss exceeds the deductible on the
declarations that applies to a single loss.
The insured is still obligated to notify the underwriter of a loss even
if the underwriter is not responsible to pay it. Similarly, if the underwriter
wants more loss details, the insured must provide them. The primary reason for
this requirement is for the underwriter to become aware of situations that
could result in a covered loss at a later date, investigate the problem early,
and prevent a more serious loss later.
This section deals with
two different types of termination. The first is termination of the insured’s
bond. The second is termination of coverage for acts of specific individuals.
A bond terminates on the
earliest date on which any of the following occurs:
When there is a change in
control to any insured other than the first named insured, this bond is
terminated with respect to only that insured.
The bond does not cover
losses caused by any employee, partner, officer of the insured, or employee of
any electronic data processor after any of the following occurs:
The type of act and the
time frame of the act are irrelevant. All that is required is that the act was
dishonest or fraudulent. The only exception is when the particular employee is
transporting property at the time the information becomes known, losses that
occur in the course of transit continue to be covered.